Liberty Mutual Deal Gets Thumb-up From Agent Groups

Liberty Mutual Group's deal to purchase Seattle-based Safeco Corp. got thumbs-up from representatives of two independent agent's associations, but rating agencies were less enthusiastic.

Robert A. Rusbuldt, president and chief executive officer of the Independent Insurance Agents & Brokers of America, called the announcement good news for independent agents.

"Liberty Mutual and its regional agency companies are 100 percent committed to the system," he said. "We are pleased that they are so committed to the independent agency system and now will be one of the largest independent agency companies in the country."

Liberty Mutual said that on completion of the deal it would be ranked third in personal lines and fifth in commercial property-casualty products distributed through independent agents.

Mr. Rusbuldt noted that transitions can be stressful, but Boston-based Liberty Mutual has a long history of integrating companies, most recently completing its deal to acquire Ohio Casualty Corp., which distributes its products through independent agents.

"We believe that over the long haul this will be good for independent agents," he said.

Dan Holst, the executive vice president of the Independent Insurance Agents & Brokers of Washington, said that Safeco and Liberty North West, Liberty Mutual's independent agent distribution subsidiary, are highly respected by agents in the state.

"They are good companies that agents know and trust," he said.

The consolidation of the two will probably make small agencies nervous, giving them less market, but he has not received any negative feedback yet on the announcement, he said.

"It's too early to know how it will all play out," Mr. Holst commented.

However, Standard & Poor's and Fitch Ratings were less enthusiastic about the $6.2 billion deal that is expected to close in the third quarter of this year.

Both rating agencies placed Liberty Mutual on credit watch with negative implications, questioning the financing of the deal.

Moody's affirmed Liberty Mutual's financial strength rating of "A2," but put Safeco's rating on review for possible downgrade.

The deal calls for a combination of cash and debt. The rating agencies said they are concerned with Liberty Mutual's capital adequacy. Fitch noted that Liberty could face some difficulty raising capital for its debt due to a challenging credit market.

S&P appeared to indicate that it would affirm Liberty's rating after a review of its capitalization, but Fitch seemed pessimistic, saying it might drop Liberty one or two notches based on its models.

Gary Gregg, president of Liberty Mutual Agency Markets, declined to comment on the rating action.

He told National Underwriter that the insurer has had an interest in Safeco for some years but was not engaged in negotiations over that period. He said the deal was closed last night but refused to give any additional details.

From a strategic standpoint the deal is a terrific geographical mix, he said, with Liberty's primary business on the East Coast and Safeco's primarily on the West.

"We get a great geographic spread and strengthen across the board together," he said.

He underscored the benefit mix, saying Liberty Mutual Agency Markets is 71 percent commercial and 18 percent personal lines, while Safeco is 66 personal and 28 percent commercial, coupled with both companies' strong surety business that would make Liberty the third largest carrier in that line.

Both companies will bring additional strengths to the table, with focus on innovation and agency relationships adding up to a very strong company for independent agents to do business with, he said.

Agents will also benefit from technology enhancements bringing a combined information technology investment of $400 million to the table, Mr. Gregg added.

"It's a great fit because of a whole suite of different things. Whether it is claims systems, agent systems or underwriting systems, no one operation has clearly better software, so this is a great way to bring it together and get better," he commented.